Filling Funds Gap
Adequate fi nance to MSMEs is a must to help them get out of the slump caused by demonetisation. The Budget tries to do just that
Adequate finance to MSMEs is a must to help them get out of the slump caused by demonetisation
The MSME sector in India is a network of 51 million enterprises, which provide employment to 11.7 crore people. It contributes to 37.5 per cent of the nation’s GDP. This sector needs working capital loans of `26 lakh crore. However, the banking system has lent them only `11.1 lakh crore. This is a significant gap that holds the MSME sector back from realising its potential.
The government has identified that this sector is significantly and chronically underfunded. Hence, it set up the Micro Units Development & Refinance Agency Ltd ( MUDRA) in April 2015 with an objective of developing the micro enterprise sector by extending support, including financial support in the form of refinance, to achieve the goal of “funding the unfunded”.
Financial institutions receive refinance from the MUDRA bank for loans against these categories. MUDRA also offers credit guarantee for loans under the scheme.Under the Pradhan Mantri Mudra Yojana (PMMY), the loan may be given in three categories — Shishu: Up to `50,000; Kishore: `50,000 to `5 lakh; Tarun: `5 lakh to `10 lakh
Over `2.4 lakh crore has been sanctioned to 60 million borrowers since the launch of the scheme. In his speech on new year’s eve, the prime minister announced the extension of the credit guarantee scheme to non-banking financial services, or NBFCs, and some relaxations on turnover. In the current Union Budget, the allocation for the PMMY has been increased to 2.44 lakh crore worth of loans, which is set to benefit many micro and small enterprises.
The Challenges
The PMMY may not achieve the disbursal target of `1.8 lakh crore for FY 17. There is a gap of almost `80,000 crore to cover to reach the targeted amount, with just two months to go in the current financial year.
Further, the balance of geographic distribution needs to be corrected. They are concentrated in the more developed states like Maharashtra and Tamil Nadu. The terms of refinance offered are different for banks, NBFCs and microfinance institutions or MFIs. The relative attractiveness of the scheme for MFIs has led to significant growth in loan disbursement this year from MFIs. In 2015/16, close to 79 per cent and 53 per cent loans were given to women entrepreneurs and borrowers from weaker sections, respectively. Maharashtra, Karnataka and Tamil Nadu received close to 34 per cent funding.
The target of `2.44 lakh crore loans in 2017/18 is ambitious. Disciplined execution by all the constituents will ensure significant scaling up of the finance available to the sector. This is especially important now, as this sector has borne the brunt of the disruption caused by the demonetisation initiative.